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Its underlying worth to you as an investor is a concept sometimes referred to as its "intrinsic value." This is what we believe the company to be actually worth, based on expectations of revenues, earnings, or other factors. Unfortunately, the value of a company is not well represented by its market cap. If you're unaware of the potential difference between a firm's present street value and its real "intrinsic" value, you might be investing where the monkeys whiz. But how do you know whether a market spanking is justified or not? From April to today, this strong business gave investors a 25% gain.ĭecades of outperformance by value investors prove that the time to buy is when no one else wants to and the stock price plummets. We can tell a similar story for AIG (NYSE:AIG), which dropped because of an ongoing scandal yet was discounted in excess of the scandal's real impact. Since becoming an Inside Value pick last November, it's returned 60%.
![monkey whiz monkey whiz](https://www.seriousmonkeybizzness.com/images/products/mw-1.png)
Last fall, Omnicare Financial (NYSE:OCR) was hammered 30% for a missed quarter and a full-year guidance downgrade. Those of us who bought a year later, when no one would touch the stock with a 10-foot pole, are now looking at 60% gains. Fall 2003 buyers are still licking their wounds. Rather, it was when the stock was brutalized for short-term operational blips exacerbated by widespread misunderstandings about its market position and pricing power. Over the past two years, the time to buy one of my favorite companies, flash-memory leader SanDisk (NASDAQ:SNDK), was not when the stock was peaking in the fall of 2004.
![monkey whiz monkey whiz](https://i.ebayimg.com/images/g/n-8AAOSwGsxdOkJ8/s-l300.jpg)
My portfolio has seen its biggest gains on just such calls. Huge potential profits await those of us who are clever enough - and brave enough - to buy what everyone hates.
![monkey whiz monkey whiz](https://www.ranchdesvignes.com/img/dancing1.jpg)
Taser's fall from grace - from $30 to $10 since January - shows exactly what happens when price takes a vacation from reality, and then reality comes home.īy contrast, value investing means ignoring the popular crowd, enduring the barbs, and then hanging out with the geeks. Although I think both have strong business fundamentals, investors have been more than willing to pay any price to avoid missing out on what everyone assumes will be years of incredible growth. For every gravity-defying Intuitive Surgical (NASDAQ:ISRG) out there, I can find you a fizzled Taser International. For some reason, the Wise on Wall Street insist on telling us that the best time to buy stocks is when they're heading up. If you buy or sell stocks based on peer pressure, you're definitely investing where the monkeys whiz. There were skeptics pointing out the flawed numbers at Krispy Kreme long before the average, doughnut-blinded stock speculator saw the harsh truth. Unfortunately, many people are so addled by their love of the goods that they don't do the math. The bottom line for you as a shareholder is, "What do I stand to gain?" It doesn't matter how much product a company can move if there's no trickle-down for shareholders. Betamax? Satellite telephone? Pet rock? Boston Chicken? TiVo? Krispy Kreme Do I need to say more? A product, no matter how great, is not an investment case. If you buy a stock based solely on your love for the product, you might be investing where the monkeys whiz. So, if you're unsure whether your new investment idea is on the wrong side of that anxious-looking monkey, here are a few ways to find out. These are the same questions investors must face today every time they click that buy button. What's the real value of this thing I'm buying? Am I sure? OK, now how much should I pay for it? How did this incredibly sophisticated commercial society get caught up in such a frenzy? By ignoring some simple, time-proven rules on purchasing investments. They rank among the greatest businessmen in the history of the world. In that respect, we're a lot like the 17th-century Dutch.